Investors want a return that satisfies the following expectation(s):
A) A return for delaying consumption
B) An additional return for taking on risk
C) An additional return for accepting dividends rather than capital gains
D) Both A and B.

Question

Quizplus · Accepted Answer

Investors expect a return that compensates them for delaying consumption and taking on risk. They require an additional return for the risk they take on, which is calculated as a premium on top of the risk-free rate. Consequently, both choice (A) and (B) are correct. Investors do not demand an additional return for accepting dividends rather than capital gains; thus, choice (C) is incorrect.

Investors Want a Return That Satisfies the Following Expectation(s)